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My client has a workers’ compensation MSA. She has now been forced into bankruptcy. She thinks she has been told by the bankruptcy attorneys that the creditors can deplete her MSA trust account. What if any, protection does an MSA have against non medical creditors?

Jen Answers:

MSAs are generally not protected funds even within federal entitlement programs also overseen by CMS (such as Medicaid). As you can guess CMS has given little consideration to the impact of MSAs on anyone or anything other than Medicare. I’m no bankruptcy expert but apparently only WC indemnity benefits are exempt under 11 USC 522(d)(10)(C), however debtor has a right to exempt property not in excess of $18,450 traceable to personal bodily injury compensation under 522(d)(11)(D)&(E). The MSA is arguably outside the scope of the 522(d)(10)(C) exemption since not technically representative of lost future earnings given the medical intend of the funds. Subsection (d)(11) is typically not applicable to WC awards, intended for use in tort claims, however judicial interpretation seems to also not see anything in the language that prohibits its use in WC related claims. Again, not a subject that I have researched extensively, but I would point you to In re Sanchez (362 BR 342 – Jan. 31, 2007). If that matter eventually reached a resolution of the disputed issues, your answer may be found there.

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Click here to track the status of Bill H.R. 2649:
To amend title XVIII of the Social Security Act to provide for the application of Medicare secondary payer rules to certain workers' compensation settlement agreements and qualified Medicare set-aside provisions